A new social contract for progressive capitalism

I searched my blog for the earliest post that included the label "Stiglitz."  I am not at all surprised that it was way back in 2008, not long after I re-started the blog.

In that post, I wrote, "It will be neat if neoclassical economics alters its course thanks to Amartya Sen, Joseph Stiglitz, and Paul Krugman. but, maybe that is asking for too much, eh!"

In my understanding, mainstream academic economics--and its political variation--did not significantly change in the more than ten years since then.  Even the nasty Great Recession did not force a sharp re-thinking in economics and politics!

There is a reason that I have keenly followed these three: They are not merely economists of repute, but also phenomenal thinkers.  And, they also write in a manner that makes even blokes like me understand the weight of their arguments.

Stiglitz has, forever it seems, yelling about the need to redo the social contract, so that it would reflect the conditions in which we live now.  There are a number of posts where I have quoted him, among many others, on the need for a new social contract.  Like in this post from three years ago.

It is also instructive to think about the comment there: "Stiglitz is in the same camp as Krugman and therefore I have to take many a gulp before I write this comment - lest Trumpesque unparliamentary language creeps in :)"  That comment is reflective of the intense political opposition that existed, and continues to exist.

In his latest opinion essay in The NY Times, Stiglitz writes:

We are now in a vicious cycle: Greater economic inequality is leading, in our money-driven political system, to more political inequality, with weaker rules and deregulation causing still more economic inequality.
If we don’t change course matters will likely grow worse, as machines (artificial intelligence and robots) replace an increasing fraction of routine labor, including many of the jobs of the several million Americans making their living by driving.

Even a casual reader of this blog knows well how much I have worried about these very issues, and which is why I have been yelling from my corner about the need for a new social contract.  A contract that would not dampen the innovative and creative forces in the marketplace, but would also provide a lot more support to the people and places that get left behind.

Stiglitz calls for a new social contract, through Progressive Capitalism.  A political economic structure that will be different from what we now have:

Most important, our exploitive capitalism has shaped who we are as individuals and as a society. The rampant dishonesty we’ve seen from Wells Fargo and Volkswagen or from members of the Sackler family as they promoted drugs they knew were addictive — this is what is to be expected in a society that lauds the pursuit of profits as leading, to quote Adam Smith, “as if by an invisible hand,” to the well-being of society, with no regard to whether those profits derive from exploitation or wealth creation.

This was the fork-in-the-road that we faced in the elections of 2016.  No thanks to two old white men, 63 million forced the country to take the wrong route despite all the flashing red lights warning us of danger ahead.  Let's see what we do in 2020.

We have met the enemy. It is us!

A few weeks ago, I wrote here--yet again!--about how reworking the social contract years ago could have helped in many ways. It is darn frustrating that something that has been so obvious was never the majority view, and continues to be marginalized. All I can do is keep talking/writing about it by pointing out that there are others with real influence--unlike my irrelevant status at work in life.

Enough about me.  Let us get to the issues, right?

Joseph Stiglitz, who is a recipient of the Nobel Prize in economics and whose heart has always been in the correct place, writes:

Under the assumption of perfect markets (which underlies most neoliberal economic analyses) free trade equalizes the wages of unskilled workers around the world. Trade in goods is a substitute for the movement of people. Importing goods from China – goods that require a lot of unskilled workers to produce – reduces the demand for unskilled workers in Europe and the US.
This force is so strong that if there were no transportation costs, and if the US and Europe had no other source of competitive advantage, such as in technology, eventually it would be as if Chinese workers continued to migrate to the US and Europe until wage differences had been eliminated entirely. Not surprisingly, the neoliberals never advertised this consequence of trade liberalization, as they claimed – one could say lied – that all would benefit.

Way back in graduate school, which is when I was getting introduced to various political economic thoughts that I had to quickly understand after years spent in science and technology,  And that was also when I got to understand some of the discussions on fairness and social contract.  I have loved that idea of "social contract" since then.  Stiglitz writes about the social contract:

But they can’t have it both ways: if globalization is to benefit most members of society, strong social-protection measures must be in place. The Scandinavians figured this out long ago; it was part of the social contract that maintained an open society – open to globalization and changes in technology. Neoliberals elsewhere have not – and now, in elections in the US and Europe, they are having their comeuppance.
Globalization is, of course, only one part of what is going on; technological innovation is another part. But all of this openness and disruption were supposed to make us richer, and the advanced countries could have introduced policies to ensure that the gains were widely shared.
Instead, they pushed for policies that restructured markets in ways that increased inequality and undermined overall economic performance

If I--a nobody--am pissed off that nobody listened to me, think about Stiglitz who has been very much a part of the domestic and international political institutions and, yet, has not been able to bend the political will on this.  I wonder how angry he is!

Stiglitz writes that "the problem was not globalization, but how the process was being managed."  And that is also the point in this NY Times editorial.

Trade and globalization have been miraculous for hundreds of millions all around the world.  Without that economic dynamic, we would not have had the flourishing middle class populations in China and India, for instance.  When talking with my parents yesterday, my father remarked that a couple of decades ago, he could not afford to even pay for the autorickshaws and, instead, he and my mother used the public transport buses if they wanted to visit with people,  which they loved doing.  Two decades of trade later, there are now Chinese and Indian tourists traveling all over the world--the kind of travel that not too long ago was almost exclusively an American possibility because only Americans were rich enough for that.  

If only we would recognize that the world is much better off now.  The problem is not globalization but our collective failure to understand the urgency, the importance, of rewriting the social contract in which those who are losing out will be compensated.  

Joseph Stiglitz on inequality in the US

I wish John Stewart didn't talk that much, and left it to Joseph Stiglitz.  But then, well, it is after all Stewart's show, eh!

The Daily Show with Jon Stewart
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The Daily Show with Jon Stewart
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I watched Nouriel Roubini on TV. Bad idea!

Flicking the channels in this part of the world where I have no idea about the lineup seems to be a version of Forrest Gump's "life's like a box of chocolates. you never gonna know what you're gonna get." :)

Earlier this afternoon, I got Nouriel Roubini.

In his unique voice and tone, Roubini delivered yet another variation of the same message that he has been delivering for, well, forever it seems like--it will get worse before it gets better.

While Roubini was being his usual Dr. Doom self, the ticker at the bottom quoted Joseph Stiglitz that the US economy might be shaky all the way through 2013.

Whatever happened to the two-handed economists that President Harry Truman complained about?

With the downgrading of quite a few Euro Zone countries' bond ratings, there is not much optimism on the economic front. So, ...

I decided that I needed to inflict more painful news on myself.

Off I went to another predictably bad news giver: Glenn Greenwald, who is really, really ticked off with the systematic killings of Iranian nuclear personnel.

I agree with Greenwald that it is terrorism; but, then, when have I not been able to agree with his analysis!

On the Iranian front, Google News brings this to my attention--a news item that quotes the Wall Street Journal:

"The US military is preparing for a number of possible responses to an Israeli strike, including assaults by pro-Iranian Shiite militias in Iraq against the US Embassy in Baghdad," the paper quoted a US official as saying.

According to the report, Washington has moved a second aircraft carrier to the Persian Gulf area and has stationed 15,000 troops in Kuwait as means to create deterrence in the region.

All right then, maybe the Mayan prophecy about 2012 will become true, after all, eh!

Meanwhile, my parents wanted an update on the cricket scores; more bad news, but, thankfully, not for me because I don't follow the game anymore and couldn't care about any outcomes there.  I suppose that is my good news for the day!

Imagine Nouriel Roubini forecasting the road ahead for India's cricket team :)

The Great Recession, Part II. The second dip cometh?

Yakking blogging about Ecuador, it turns out, was a wonderful distraction from depressing stuff, like Joseph Stiglitz's column, in which he writes that instead of putting "America back to work by stimulating the economy; end the mindless wars; rein in military and drug costs; and raise taxes, at least on the very rich" the fanatical free market ideology of the right is instead:

pushing for even more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection that put the future of the U.S. economy in peril and that shred what remains of the social contract. Meanwhile, the U.S. financial sector has been lobbying hard to free itself of regulations, so that it can return to its previous, disastrously carefree, ways.

When Stiglitz writes thus, it is time to worry. To really, really, worry.

So, what are the Democrats and President Obama doing to counter this ideological offensive from the right?  Mark Thoma is utterly disappointed:

We can do better than this, but it takes leadership and a willingness to fight rather than acquiesce, traits that are far too short in supply in the current administration.

 Hmmm ... so, does this mean that Europe, which doesn't suffer from the ideological right, but is cursed by the ideological left, any better?  Yes, Professor Stiglitz?

But matters are little better in Europe. As Greece and other countries face crises, the medicine du jour is simply timeworn austerity packages and privatization, which will merely leave the countries that embrace them poorer and more vulnerable. This medicine failed in East Asia, Latin America, and elsewhere, and it will fail in Europe, too. Indeed, it has already failed in Ireland, Latvia, and Greece.

Oh, come on.  "Can't anybody here play this game?"

 Stigltiz says there is a way out, but that path is blocked by the ideologues from the right:

an economic-growth strategy supported by the European Union and the International Monetary Fund. Growth would restore confidence that Greece could repay its debts, causing interest rates to fall and leaving more fiscal room for further growth-enhancing investments. Growth itself increases tax revenues and reduces the need for social expenditures, such as unemployment benefits. And the confidence that this engenders leads to still further growth.Regrettably, the financial markets and right-wing economists have gotten the problem exactly backward: They believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government's fiscal position, or at least yielding less improvement than austerity's advocates promise. On both counts, confidence is undermined, and a downward spiral is set in motion

I was positive Paul Krugman would have a succinct bottom-line, and he didn't fail:

what we now have is a political drive that will, in effect, undo all those institutional changes that prevented the Great Recession into turning into another Great Depression.

It is a good thing I do not have to worry about stuffing my money into the mattress--have nothing to spare after paying the bills!  Not complaining though--at least I have money to pay those damned bills ...

Self-interest “properly understood”: the growing inequality in America

Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office.

 Says a lot about American politics now, doesn't it!

That was from this piece by the Nobel Laureate Joseph Stiglitz on how "1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret."  Stiglitz writes:

Of all the costs imposed on our society by the top 1 percent, perhaps the greatest is this: the erosion of our sense of identity, in which fair play, equality of opportunity, and a sense of community are so important.

The unemployment and the depressing economic situation that the youth face worries me a lot, perhaps because I see them everyday in the ready to graduate students.  I can't imagine them remotely thinking it is fair play when they are screwed ...

Stiglitz concludes:

The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.

An IMF study (ht) emphasizes that

It is a big mistake to separate analyses of growth and income distribution. A rising tide is still critical to lifting all boats. The implication of our analysis is that helping to raise the lowest boats may actually help to keep the tide rising!

The immediate role for policy, however, is less clear. More inequality may shorten growth duration, but poorly designed efforts to reduce inequality could be counterproductive. If these distort incentives and thereby undermine growth, they can do more harm than good to the poor.

Still, there may be some “win-win” policies, such as better-targeted subsidies, better access to education for the poor that improves equality of economic opportunity, and active labor market measures that promote employment.

When there are short-run trade-offs between the effects of policies on growth and income distribution, the evidence in our paper doesn’t in itself say what to do. But our analysis should tilt the balance towards the long-run benefits—including for growth—of reducing inequality. Over longer horizons, reduced inequality and sustained growth may be two sides of the same coin.

I like Stiglitz's arguments on the deficit and debt. But, politics sucks!

Do I worry a lot about the growing trillions of dollars of debt?  Of course, yes.  Do I worry even more about the unemployment levels?  Yes, dammit.

Is there a way to address both?

Joseph Stiglitz says, ahem, yes, we can!  I like the points he makes, in explaining why he refused to sign off on the bipolar bipartisan group of former chairmen and chairwomen of the Council of Economic Advisers' letter "that stresses the importance of deficit reduction and urges the use of the Bowles Simpson Deficit Commission’s recommendations as the basis for compromise":

In my report, I outline the low-hanging fruit that could easily exceed the $4 trillion dollar target set by the Bowles-Simpson Commission. For example: (a) The Cold War ended more than two decades ago, but we continue to spend tens of billions on weapons that don’t work against enemies that don’t exist. Fruitless wars have not increased our security and our military’s credibility. Rather, they have undermined both.

We could have more security with less spending. The commission recognized this — but didn’t go far enough. Congress and the Obama administration have not gone far enough either.

(b) The health care reform bill did little to eliminate the trillion-dollar giveaway to the drug companies, resulting from restrictions on the ability of government (the largest buyer of drugs) to negotiate prices. In contrast to every other government in the world. While much more can, and should, be done to control health care costs, this little change would make a big difference.

Eliminating corporate welfare, both that hidden in our tax systems and in the hidden give-aways of our country’s natural resources to oil and gas and mining companies; eliminating the unjustifiable and harmful tax breaks for speculators and companies that keep their money out of the country, and taxing activities that generate large negative externalities—whether the environmental pollution that threatens our health and our children’s future, or the financial transactions that brought out country and the world to the brink of ruin—could all easily generate trillions of dollars in revenues. At the same time, they could also create a fairer society, a cleaner environment, and a more stable economy.

Deficit reduction is important. But it is a means to an end — not an end in itself. We need to think about what kind of economy, and what kind of society, we want to create; and how tax and expenditure programs can help achieve those goals.

Greg Mankiw, who was Bush's CEA Chair, differs. 

I am not sure whether one even needs to get into the content of their disagreement, or whether we can merely use the proxy qualifiers: Stiglitz headed the CEA during Clinton's presidency, and Mankiw had the job when "W" was the president.  I suppose it would be news if those two had advocated contrary positions.  Which makes me wonder then where the science of economic calculations is, and where the politics begin!

BTW, did you catch this news item about GE--the country's largest corporation--having paid no income taxes, thanks to all the gazillion tax loopholes that its army of accountants and lawyers exploit, after those loopholes were created thanks to the gazillion lobbyists? 

At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”
Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation.

 Ah, good ol' US of A.

Corporations serve us, or do we serve corporations?

Many years ago, while still a high school kid reading every potboiler novel around, I read The "R" Document, by Irwing Wallace.  (I confess that as a teenager, whose biology was rapidly changing, I was way more fascinated by his "The Seven Minutes"!)

The novel, which my cousin from the big city of Madras had loaned me, was set in an America of chaos and violence, and a near breakdown of law and order.  The answer to this was going to be a constitutional amendment that would suspend the first ten amendments to the Constitution--the Bill of Rights.  And, of course, there is a much deeper conspiracy driving all these, and one of the conspirators is an all powerful multinational corporation, "Supranat Co." (at least, this is how much I recall from memory, which is fading by the day!)

Fast forward a few years, and I was among the audience at USC to listen to Ralph Nader who was critiquing the powerful rights that the government and the Supreme Court had awarded to corporations.  Nader was worried that scheming corporations will subvert civics and the Constitution.

Over the years, I have had my own love-hate relationship with mega corporations.  The one thing I know for sure that I hate is their ability to participate in elections.  If democracy is for, of, and by the people, only humans can participate in governance.  Yet, time and again, the Court re-affirms corporations as individuals, which is one hell of a screw-up.  Now, after reading this interview with Joseph Stiglitz, who is no dunce, I am really, really concerned:

"Corporations are a legal entity," Stiglitz explained. "We create them. And when we create them we create all kinds of rules. They can go bankrupt. And that means they owe more money and they get away scot-free. They can create an environmental disaster, and then go bankrupt and again go away scot-free. So, as legal entities we have the right to make the rules that govern them."

"As individuals we have certain basic rights," Stiglitz continued. "We aren't created by the law. We exist by nature. But corporations are man-made. They are supposed to serve our interest, our society's interests. And we are creating them with powers that are not serving our society's interests."

Is it all the fault of "market fundamentalism?"

Economists have started examining their discipline, and how much the market can truly deliver.  To criticism from Nobel laureates like Joseph Stiglitz and Paul Krugman, in a thoughtful essay, Jagdish Bhagwati reminds us, again,  that hundreds of millions were lifted out of poverty in India and China only because of liberal economic policies.  He then writes:

Capitalism works best when those who do not succeed, and are buffeted by the vicissitudes of life, still believe in success—believe that those who do succeed put their wealth to good use, and do not merely engage in self-indulgence. Remember that the Calvinists and the Jains of Gujerat accumulated wealth but spent it not on themselves but on promoting social good.

Capitalism works well when those who lose feel that one day they might also win. This is the great American dream: even when mobility has been less real than imagined, the belief matters.

Today, in the United States, both “stabilizers” of capitalism have taken a hit. There has been far too much flaunting of wealth, even as working-class incomes have stagnated, with magazines on “How to Spend It” in the Financial Times and displays of the insufferably rich glitterati in the Style section of the New York Times. 

I have only one question: why does he spell it as "Gujerat" when in India it is spelt "Gujarat?"  Bhagwati has his reasons, I am sure.  I wonder what those reasons are!  HT

Liberalization, privatization, and bailouts. Déjà vu all over again

Today countries around the world view with cynicism the economic ideas we were trying to export. They came to believe that our push for liberalization and privatization was guided in no small measure by our own corporate and financial interests. Our bailout plans, which provided billions of dollars to help repay banks but denied millions of dollars in food and fuel subsidies for the very poor, only confirmed this impression.

You know what is really interesting about this excerpt? The "today" mentioned here is not in the context of the current economic crisis and the trillion-dollar bailout plans. No sir. This is from an essay that the Nobel-prize-winner Joesph Stiglitz wrote in the Atlantic in October 2002! In this essay, Stiglitz was reflecting on the "roaring nineties" during which he was at various times the chief economist for the World Bank, and chaired Bill Clinton's Council of Economic Advisers.

Well, here he is explaining the current global economic crisis:

Stiglitz on The Colbert Report

In an earlier post, I dreamt about Krugman, Stiglitz, and Sen drafting an economic manifesto for the next administration. Maybe Stephen Colbert can get them together and devote an entire show to joshing with them. Step 1: Stiglitz. I am sure Krugman will be there one of these days ....

Paul Krugman's Nobel Prize

This is exciting--particularly because he barely registered a blip in the pool that Greg Mankiw blogged about.
Am excited even more because most of the courses I teach are either directly or indirectly about economic geography .... and Krugman was one of the first neoclassical economists to systematically talk about a "new economic geography"
In his book Geography and Trade, which is a collection of his lectures, Krugman writes,

About a year ago I more or less suddenly realized that I have spent my whole professional life as an international economist thinking and writing about economic geography, without being aware of it

It will be neat if neoclassical economics alters its course thanks to Amartya Sen, Joseph Stiglitz, and Paul Krugman. but, maybe that is asking for too much, eh!
BTW, both Sen and Krugman were solo winners .... I think that these were also political statements by the committee--Sen's came after the collapse of LTCM, for which the previous year winner provided the brains! It was the committee's way of apologizing .... Krugman's selection reflects the need to change course from the maniacal approach to freer trade and less regulations.

Hey, this is my blog, and I am entitled to my opinions!
The video here is thanks to Google--it makes available on YouTube the talk and Q/A with authors who are invited to its SF headquarters